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March 27, 2012

Is Sharing Patents vs Licensing Them, Viable?

According to article, "Sharing Patents Encourages Innovation", if visiting professor of economics at the University at Buffalo, Gilad Sorek, has his way, then the crowdsourcing model of problem-solving, will now apply to patented innovations.

["Crowdsourcing is the act of outsourcing tasks, traditionally performed by an employee or contractor, to a large network of people aka "the crowd".

These persons then work on these tasks and submit solutions to the outsourcing company, aka the crowdsourcer.

The crowdsourcer then selects the best solution and the winning solution provider(s) is/are then compensated monetarily with prizes, recognition, kudos or intellectual satisfaction".

Crowdsourcing ensures that the business solves its problems and accomplishes tasks in a shorter period of time, thus allowing it to profit from solutions, faster.

An example of a company that enables crowdsourcing is IdeaConnection - they connect companies with people who can solve their business problems and work on business tasks].

Continuing...

In current innovation commercialization models, a company develops an innovation, patents it, then spends its internal resources bringing that innovation to market (aka commercializing that innovation).

US Patent law gives that company 14-20 years to solely benefit financially from the commercialization of that innovation, by preventing its competitors from developing competitive products based on the original innovation.

Prior to the expiration of the patent (which could be up to 20 years), the company or individual owning the patent, can choose to license it to one or more companies or choose to keep it in-house.

Thus risking the chance that less people could benefit from the original innovation (a limitation caused by decreased ability of one company/individual to achieve full market penetration in a short period of time).

What is being proposed by Gilad Sorek, is free-licensing, where no one company would monopolise ownership of an innovation.

Instead, the innovation would be made available to a pool of users, who'd use their creative talents to develop ideas for new products/services based on the original innovation.

The rationale behind free- licensing is that since the patent holder often has to spend thousands to millions of dollars to not only patent his invention, but hire litigators to protect it from infringement...

...Why not just give the innovating company the greatest opportunity to reach the widest market possible, by crowdsourcing the innovation's development...

...thus tripling its profit potential?

Free-licensing would then expand the overall market, giving enhanced benefits to the consumer, developers (including the innovating company's competitors) and the original patent holders:

...as the consumer would now be able to assess several versions of the product in far less time, developers would get to hone their product development skills thus being able to innovate derivative products in a shorter space of time...

....and the original patent holders would benefit from increased revenue from the sale of diversified products and services created by several developers.

Well, the above article claims that original patent holders would lose market share, but I think differently:

The above article itself points to an example of free-licensing that already exists, where Adobe allowed its PDF format to be publicly available, thus facilitating the development of several derivative products which enabled the format's quicker acceptance and dispersal, globally.

Not only did Adobe gain increased brand recognition from going this route, they were able to use this as a foundation to roll out other Adobe products, globally, thus gaining faster market acceptance and penetration (at decreased costs) than they would have, hadn't Adobe been a household name.

So is sharing patents vs licensing them, viable?

Well, from the arguments presented above... yes.

But how many companies would be willing to give up their present multi-billion dollar investment in patents, to migrate to this model of innovation commercialization?

Think of the thousands of patent attorneys who'll lose their jobs or who'll have to restructure their jobs, as a result of the implementation of this model.

Due to the short to long term profit potential of free-licensing, however, I don't think that, going forward, companies will have a choice...

...It's better to have 3/4 of a market and be able to expand to other markets in a short period of time, by co-opting with your competitors, than only have 1/16th of a single market, by going it alone.